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'Robo-signing' is baaaack

Actually, investigations by Reuters and the AP find that sloppy, illegal handling of mortgage documents never stopped. The problems add fuel to housing morass.

By MSN Money Partner Jul 19, 2011 1:08PM

This post comes from Marilyn Lewis of MSN Money.


Despite widespread media coverage, public outrage, federal and state investigations, and promises by the banks themselves to stop, "robo-signing" continues by many lenders in many states, according to separate new investigations by Reuters and The Associated Press.


The Associated Press says, "Mortgage industry employees are still signing documents they haven't read and using fake signatures more than eight months after big banks and mortgage companies promised to stop the illegal practices that led to a nationwide halt of home foreclosures."


Writes Reuters:

Reuters has found that some of the biggest U.S. banks and other "loan servicers" continue to file questionable foreclosure documents with courts and county clerks. They are using tactics that late last year triggered an outcry, multiple investigations and temporary moratoriums on foreclosures.
In recent months, servicers have filed thousands of documents that appear to have been fabricated or improperly altered, or have sworn to false facts.

"Bruising scandal"

"Robo-signing" is slang for document-handling practices ranging from sloppy to illegal. Bank and mortgage company employees forge signatures, use phony titles or sign and notarize legal documents without verifying what's in them.


Some say it involves careless but harmless shortcuts. Others -- including some courts -- call the actions illegal and say they undermine the integrity of the system of property records on which property ownership rests.


"Increasingly, though, courts are holding that the trusts suing to foreclose don't actually own the mortgages," says Reuters.


Significantly, the Massachusetts Supreme Judicial Court overturned a foreclosure in January. One justice wrote that "foreclosure is a powerful act with significant consequences" and has to be done legally.


"America's leading mortgage lenders vowed in March to end the dubious foreclosure practices that caused a bruising scandal last year," Reuters says.


But Reuters reporters found 1,000 mortgage assignments with various problems and inaccuracies when reviewing case files from attorneys and combing online databases in Florida, Massachusetts, New York, and North and South Carolina.


The AP reports that "county officials in at least three states say they have received thousands of mortgage documents with questionable signatures since last fall." The story quotes county officials in Massachusetts, Michigan and North Carolina.


Phony signatures

The AP investigation focuses on phony signatures on legal documents used to foreclose. Previously, investigators and attorneys had identified a number of signatures believed to be bogus. These signatures are still showing up in an improbable number of documents and often appear to be done by many different hands, the AP says.


Banks that acknowledged problems blamed them on overworked employees and offices overloaded with a flood of foreclosures.


Last fall, robo-signing problems showed up among foreclosure documents. Now, though, the AP says, robo-signing turns up in refinancing and new purchases and affects borrowers in good standing.

"Robo-signing is not even close to over," says Curtis Hertel, the recorder of deeds in Ingham County, Mich., which includes Lansing. "It's still an epidemic."

Robo-signing worsens the crisis

The housing crisis began when the price bubble burst, taking inflated values back to earth in most parts of the U.S. Where too many new homes had been built by speculating developers -- mostly in Nevada, Florida, California and Arizona -- the speculating buyers disappeared, causing real estate markets to collapse.


Initial defaults and foreclosures were by homeowners who'd bought flimsy mortgages with unsustainable payments. More were triggered by unemployment, the prime cause today.


Federal efforts haven't convinced banks to modify significant numbers of defaulting mortgages. The overhang of pending foreclosures prevents housing from healing. Post continues after video.

Robo-signing exacerbates the crisis. Once it was discovered, foreclosures ground to a halt as state and federal officials investigated and several banks -- including Bank of America, JPMorgan Chase, Ally Financial, HSBC -- initiated moratoriums while looking into their practices.


In April, after a federal investigation, the 14 largest banks agreed to improve procedures and reimburse homeowners who'd been wrongfully foreclosed on as a result.


Critics called it a slap on the wrist. Liberal economist Paul Krugman says the country is "letting bankers walk."


Now, says Reuters:

Of these companies, Reuters has found at least five that in recent months have filed foreclosure documents of questionable validity: OneWest, Bank of America, HSBC Bank USA, Wells Fargo and GMAC Mortgage.
So have half a dozen large servicers that weren't party to the agreements, including Ocwen Financial Corp and units of Credit Suisse Group AG.
Spokesmen for the banks and servicers named in this article said that they halted any wrongdoing after disclosures last autumn of robo-signing led them to revise their practices, and they denied filing false documents since then.

A separate investigation and effort by state attorneys general to forge an independent -- and, some hope, tougher -- settlement is moving slowly, Reuters reports. Meanwhile, foreclosures are picking back up but "processing problems at the major mortgage servicers" have kicked up to a million foreclosure actions into next year, HousingWire writes.


Homeowner attorneys further slow foreclosures by objecting to flawed legal documents; bank servicing units reportedly are slow to respond when their practices are challenged.


These delays push the housing recovery further into the future, writes Bloomberg.


Today, The New York Times writes that backed-up foreclosures reward defaulting homeowners with free rent indefinitely: "In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real-estate data firm."


New Jersey has 42 years of repossessions ahead of it, and it will take 10 years to repossess all the homes with defaulting mortgages in Massachusetts, Illinois and Florida, says the Times.


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